Homeowners insurance protects you if, say, a fire burns your house to the ground. That’s a start. But you also need to think about protecting your home against something equally dangerous: a lawsuit. If a houseguest slips in the bathtub, you could get sued. Lose the lawsuit and you could lose all of your assets, including your home.
Umbrella insurance is designed to take over when your homeowners insurance reaches its liability limits. The key to making a decision about whether to purchase an umbrella policy is understanding what’s covered by umbrella insurance and, equally importantly, what isn’t.
Among what’s commonly covered by an umbrella policy:
Personal injury or property damage caused by you, members of your family, or hazards on your property for which you are legally liable. This includes what are called “attractive nuisances” such as swimming pools and trampolines.
Personal liability coverage for occurrences that take place off your premises. For example, if your dog bites a neighbor.
An additional layer of protection for your vehicles, beyond your auto insurance.
Protection against slander, libel, wrongful eviction, or false arrest.
Lawyer fees when you have to defend yourself.
Umbrella insurance: What’s excluded
While umbrella insurance is comprehensive, there are some exclusions, according to Travelers, such as:
Damages expected or intended by the insured.
Liability arising from certain exotic vehicles, such as aircraft and jet skis. (Snowmobiles and golf carts usually are covered.)
Damages to your own property. (Depending on how these were caused, your standard homeowner policy may cover these.)
Other key exclusions for typical umbrella policies involve business activities. Bob Gustafson, a certified financial planner in Marlborough, Mass., offers the example of a van driver delivering yarn to a homeowner who makes extra money knitting sweaters and selling them on eBay. This is a business, and your home/umbrella policies probably won’t cover you if the van driver gets hurt on your icy driveway. Riders, costing about $300 to $400 a year, are available for small home-based businesses.
People who work on your property normally aren’t covered either. How you should handle them depends on their status. Workers employed by a business, such as landscapers or gutter cleaners, should carry their own insurance, says Gustafson. Check before hiring them.
Full-time domestic employees, such as housekeepers and nannies, are treated differently. They aren’t likely to have their own insurance, and Brian Mittman, an attorney in White Plains, N.Y., says they may not be covered under yours either. If your full-time nanny falls down rickety basement steps, you probably aren’t covered, even if you pay her “off the books” in cash. Ask your insurer about a special rider.
Occasional domestic workers—those who work less than 35 hours a week—should be covered under standard homeowner/umbrella policies. You shouldn’t require a rider for an infrequent house cleaner or babysitter, for example, but check the terms of your policies to be 100% sure.